Construction freed for FDI

Sale of undeveloped land prohibited.

The Cabinet today cleared a proposal to allow 100 per cent foreign direct investment (FDI) through the automatic route in construction.

It has also decided to allow 100 per cent FDI through the same route in the construction of townships, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, and city and regional level infrastructure. So far, prior approval of the Foreign Investment Promotion Board (FIPB) was mandatory.

However, in order to avoid speculation in real estate by foreign investors, the sale of undeveloped land has been prohibited. The new guidelines are expected to boost construction of all types.

"Though FDI was permitted in commercial construction earlier, this was only part of a township project. This linkage is now not mandatory," an official release said.

Under the new norms, the minimum area to be developed for serviced housing plots will be 10 hectares (or 25 acres), while for construction development projects, it will be a built-up area of 50,000 sq metres. In case of a combination of projects, meeting either of the two conditions will suffice.

As per the present guidelines, the minimum area to be developed is 100 acres and a minimum of 2,000 dwelling units.

"The need for a review had been felt because from the time the sector was opened up, only nine FDI proposals were approved for development of townships. Interaction with stakeholders has revealed that the requirement of a minimum area of 100 acres was a major deterrent," the release said.

FDI projects shall conform to the norms and standards, including land-use requirements and provisions of community amenities and common facilities as laid down in the applicable building control regulations, bye-laws, rules and other regulations of state governments, municipalities or concerned local bodies, the release said.

"This essentially means that now it is the state governments and municipal bodies that will be approving such projects. It also means that in terms of treatment, FDI projects will be accorded national treatment on a par with local developers," the release added.

Investment will also be subject to a minimum capitalisation of $ 10 million for wholly owned subsidiaries and $ 5 million for joint ventures with Indian partners. The funds will also have to be brought in within six months of commencement of business.

The norms stipulate that the original investment cannot be repatriated within three years of the completion of the minimum capitalisation.

However, the investor may be permitted to exit earlier than that with prior approval of the government through FIPB.

"The investor will not be permitted to sell undeveloped plots. 'Undeveloped plots' will mean where roads, water supply, street lighting, sewerage and other conveniences have not been made available. It will be necessary for the investors to provide such infrastructure and obtain the completion certificate from the concerned local body or service agency before they can be allowed to dispose of the plots," the release said.